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Amazon hikes Prime membership fees in US as wages, costs rise

Amazon hikes Prime membership fees in US as wages, costs rise

FILE PHOTO: The logo of streaming service Amazon Prime Video is seen in this illustration picture taken March 5, 2021. REUTERS/Danish Siddiqui/Illustration/File Photo

Amazon.com on Thursday (Feb 3) said it was raising the price of its annual US Prime subscriptions by 17 per cent, as it looks to offset higher costs for shipping and wages that it expects to persist this year.

Shares rose as much as 17 per cent in extended trade after beating profit expectations for the holiday quarter. If shares rise on Friday by that much, it would be the stock's biggest percentage gain since October 2009.

For the holiday quarter, Amazon earned US$14.3 billion, double its net income from a year earlier. That included a pre-tax gain of US$11.8 billion from its stake in electric car maker Rivian Automotive.

On the heels of a windfall from greater at-home shopping in the pandemic, Amazon has poured money into its operations to manage disruptions, most recently the Omicron variant of COVID-19. It has marketed signing bonuses to attract hundreds of thousands of workers in a tight labour market, and it has paid more for shipping because it could not get products into the right warehouses.

Now, it is raising the US monthly fee of Prime, its fast-shipping and media subscription, to US$14.99 from US$12.99, with annual membership increasing to US$139 from US$119. The change is effective Feb 18 for new members and reflects greater benefits such as savings on prescription drugs and faster delivery, it said.

US subscribers' annual fees last went up four years ago to US$119 from US$99, and they went up four years prior. Analysts have said it was time And it has more than 200 million paid subscribers to its loyalty club Prime to whom to appeal for an increase to cover the company's increased costs. The company announced no changes for Prime members outside the United States.

Chief Financial Officer Brian Olsavsky told reporters on a conference call that Amazon expected some Prime members to quit, but retention loss "hasn't been large in the past."

Revenue per Prime member "did grow significantly during the pandemic", he added.

With more than 200 million members globally, Prime is an incentive to consumers to direct more of their shopping to Amazon so they can make the most of their subscriptions. Such fees for the fourth quarter alone rose 15 per cent to US$8.1 billion.

AD AND CLOUD BUSINESSES SOAR

Operational disruptions, lost productivity and inflationary pressures contributed to more than US$4 billion in costs during the holiday quarter, Olsavsky said.

No matter: a key business, cloud unit Amazon Web Services (AWS), performed better than expected. Insider Intelligence analyst Andrew Lipsman said this helped offset softer e-commerce growth.

"The one clear bright spot for the core business was the continued acceleration in AWS to help bolster a bottom line that was otherwise squeezed, if not for the boost it got from the Rivian investment," he said.

With demand rising for gaming and remote work during the pandemic, AWS posted a 40 per cent rise in revenue to US$17.8 billion. Analysts had expected more than US$17.3 billion, according to IBES data from Refinitiv.

The unit even won a key customer, announcing Thursday an expanded partnership with retailer Best Buy Co. AWS has long sought rivals as its marquee clients, such as Netflix, to show it is a trustworthy partner and not scooping up competitors' data. Microsoft Corp and Alphabet's Google recently forecast a positive outlook or results for their cloud businesses as well.

Amazon also broke out ad revenue for the first time, reporting a 32 per cent increase to US$9.7 billion for the fourth quarter. That's bigger than the ad sales Alphabet's YouTube reported for the same period.

An Amazon official told reporters that the ability of brands to reach consumers across its ad properties was "largely unchanged" after Apple Inc's privacy tweaks to its operating system.

The changes made it more difficult for brands to target and measure ads on Instagram and Facebook, for instance, causing parent Meta Platforms Inc to anticipate around a US$10 billion hit this year and sending its shares down 26 per cent Thursday.

Still, Amazon forecast first-quarter sales below Wall Street estimates, projecting between US$112 billion and US$117 billion, or to grow between 3 per cent and 8per cent.

Analysts were expecting US$120.04 billion, according to IBES data from Refinitiv.

Source: Reuters

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